National Council Of Legislators From Gaming States Winter 2016 Meeting Summary(NCLGS)

I had the pleasure of attending NCLGS in Orlando Florida this year(2016). I have attended a number of "Gaming/Gambling" related conferences over the years  but had never attended NCLGS. I was pleasantly surprised by the agenda, participants and the dialogue that ensued during the conference.

NCLGS is an extremely important and influential group  composed of legislators, lobbyists and gaming regulators form around the country(USA). In addition to regulators the conference had representation from   gaming content providers,  land based casino operators,  native american casino operators, iGaming operators and game content providers. 

The 2016 conference's focus can be broken down into a number of broad categories.

Commercial Land Based Casino Health And Welfare - This group excludes the Native American casino's which will be addressed later. It is composed of the Classic Atlantic City and Vegas land based operators. These are the entities that helped to define what gambling regulation is today and are still the primary focus for land based regulation in the USA. It is clear from regulators and casino operators that these entities show  great promise as demonstrated by Atlantic City's recent gaming table revenue growth and challenged as demonstrated by Las Vegas flagging gaming table revenue.  

Vegas - The gaming table revenue in Vegas is falling and so are the numbers of people engaging in gambling in Vegas. Two factors play a role in this decline.  

 Alternate Entertainment - Vegas has done a  good job in creating a "destination" resort      environment  for tourists form around the world. The strip is filled  with throngs of people walking the strip. The shows are packed and in some cases the trendy restaurants and clubs. However the casino floor for the most part is only partially occupied. So what are these people doing in Vegas if they are not gambling? It appears that the alternate entertainment in the form of shows, restaurant, rides, etc. is drawing the crowds and not the casino floor.

 Changing Demographics And The Millennials  - The conference spend a significant amount of time pondering the impact of the millennials on and off  the gaming floor. There was clearly a consensus amongst the conference presenters that   the gaming "content" currently offered by land based casino's is clearly off the mark when it comes to the millennial demographic.  This consensus generated a number of ideas on what the gaming content should be to improve the likelihood that millennials will be encouraged to play gambling content oriented games.

Socially/Interactive Games - It is clear based on the success of console  and "social casino" games that social or at least interactive games are what this demographic group prefers to engage in. Of course, poker is the ultimate and traditional form of social gambling. However, there are many more games that could be based on current console gaming platforms that could be adapted to a gambling content.

Skill Gaming And Fantasy Sports - Much time was spent on the subject of  fantasy sports and its alleged  categorization as a skill game. One can argue both sides of this debate. However, these debates are almost irrelevant because it is clear that the combination of social and skill gaming is clearly a winner when it comes to attracting millennials to Las Vegas and other land based operations.

Online/Internet Gaming And the Poker Conundrum -   The online poker juggernaut continues to plaque and perplex the regulated gambling authorities and industry. How can you possibly outlaw the all american past time and online gambling in general. There was direct reference to New Jerseys' growing success in these online domains. Undeniably these sectors have to be addressed by US gambling regulators  if there is to be any future for "gambling" in America. You can not hide your head in the preverbal ground and ignore this. The  most paradoxical aspect of ignoring the online domain from a regulatory perspective is that this approach  provides  opportunity for illegal online gambling operators.  

Native American Indian Land Based  and Regional Casinos - The most interesting, amazing, uplifting and in some cases heart breaking subjects at the conference was the advent and growth  of the native american indian land based casino initiative. The native american representatives made a compelling case for how important these casino's are for their constituents. They provide funding for schools, housing, jobs and healthcare that would otherwise never happen without gambling revenues. Essentially, a very real positive use of funds generated by their land based casino initiatives.

Overall, NCLGS was an honest and informative get together to discuss legal gambling in the USA. I commend the professionalism of the participants and the honest dialogue that accompanied the conference.  The conference also highlighted serious issues that regulators and existing land based operator face. The world is changing in terms of gaming and gambling content and the existing operators, although aware of these challenges, appear to be either slow to address them or in a bit of denial about the future of both land based gambling trends and iGaming.

  Kevin Flood is the CEO of Gameinlane, Inc. Gameinlane  has developed, launched and operated Internet gambling sites in Europe.   The company engages with land based casino  operators, online gambling operators, social casino operator and game developers to assist them in determining their strategy and implementation  of game content.  Gameinlane   develops "social and real money" casino games for third parties. Kevin has worked for and with US land based casino operators helping them evaluate social casino and iGaming platforms for the purpose of joint ventures and acquisitions. Kevin can be reached at kflood@gameinlane.com.

  

Understanding The Relation Between Land Based Casinos And Online Gaming

The upcoming online gambling debate between Caesars and the Sands CEO's is a bell weather for the historical, cultural and operational divide that has existed between operators of online casino game content such as social casino and online gambling operators and the operators of land based casinos. The upcoming debate addressing the legalization of online gambling in the US and its impact on land based casinos has been going on for years with casinos changing their minds on supporting online gaming or ignoring it maintaining a singular focus on land based operations.

Many people are unaware of how long land based casinos have actually been confronted with this questions and how they have vacillated between supporting, not supporting and supporting again, etc. operating, running or engaging in joint ventures related to online game content.

Between 2001 and 2004 many of the UK casinos and land based brands such as Hard Rock successfully launched online gambling operations and still do today. US casinos also entered the UK online gambling and pseudo social/gambling market around the same time and eventually closed their operations for a number of reasons.

Of particular interest was the social casino  site launched by MGM for the America audience in 2001. The service was a resounding and surprising success but was closed because the service was not tied into the MGM loyalty  systems and MGM was more interested in "real" online gambling in the UK.

The emergence of Zynga poker between 2007 and 2009 attracted the interest of land based operators again and they turned their attention to "social/freemium" gaming.  Fast forward to 2013/14 with MGM/MyVegas  jumping back into the social/freemium arena  with the added benefit of integrating the property into their loyalty systems. IGT buys DoubleDown and the other Slot providers such as Bally's and Williams all start to convert their traditional offline slot content to online versions. Caesar's buys Playtika, etc.

Despite all of this activity there still remains a divide and a degree of skepticism on the part of traditional casino operators, small regional casinos and even operations managers within the larger land based casinos that have launched online businesses. If online is real and if they should get involved?  The Sands is upfront about this, however, others have the same feeling. Social and real money online gaming operators still sense an aloof  and sometimes disconnected relationship with land based casino staff.

So what is at the basis of this confused and for many, a rather frustrating state of affairs between offline and online gaming operations?

The fact of the matter is that both of these businesses models could not be more different. There are more reasons for  each group not to engage then their are to engage. Everything from day to day operations, marketing, staffing, content selections, priorities, regulations, history, skill sets, etc.  are different.

The one binding factor between the two business sectors is that in the US and Canada the gambling regulation and license are being  controlled by land based operators. This does force the two sectors to collaborate in some way and ironically forces land based operators to become online gambling experts.

The Sheldon Adelson Gary Loveman debate is going to  engage the question "will online gaming positively or negatively impact land based operations" and does online gambling make any sense from a purely financial sense based on a land based casino's operating model, cash flow and profitability. we will see how the debate goes.

Social and freemium gaming is a wild card in the overall debate because it is not subject to the same regulatory rigor and has a very different operating model for "real" money online gambling. Pace of Innovation,  extreme competition, size of the market, etc . are examples of why this sector has a different spin to it.

In the end, despite the outcome of the debate social and online gambling are here to stay. Even if legislation to legalize online gambling roles out at a glacial pace in the US there are plenty of "illegal" sites that are and will fill the demand for this content.

There is certainly a place in the business world for land based casinos that take no interest in online social/freemium or real gaming and a place for pure online models. Offline and online are fundamentally different experiences and people will have their preferences. The questions is where will the growth in total players and revenue per player  come from?Currently, Vegas is beginning to generate more revenue from non-gaming activities. The regionals still are predominately gaming revenue. However that is because they have less non-gaming revenue opportunities. Competition is fierce in the online space, especially, in the balkenized world of European online gambling. This may force both online and offline gaming content providers to form joint venture  across borders and within different gaming models to stay competitive. Essentially, the two operating groups may have to collaborate to remain competitive.

  Kevin Flood is the CEO of Gameinlane, Inc. Kevin writes  about online games and their impact and integration into iGaming and E-commerce environments. Kevin is a frequent speaker at online game events and conferences in Asia, Europe and the US. Kevin and his Gameinlane team are currently working with online gambling, social gaming and e-commerce companies integrating social gaming with online gaming operations and integrate game mechanics into e-commerce applications.

Managing The Land Based Casino iGaming And Social Game Company Relationship

At GDC this year I met a number of social casino operators that were attending the conference.  One of the major topics that these operators wanted to discuss with me is how would they go about establishing a relationship with a US land based casino operator. I was being asked because they were confused over the behaviour of the land based casino's approach to social gaming, which by the way, the GDC audience refers to as  "Free To Play" and not social games, with free to play being the more appropriate characterization of the space.

After some cursory discussion on the topic of the land based casino approach to iGaming and free to play games I realized that the social casino  and iGaming people really do not fully understand US land based casino operators. The most important thing they do not understand is the role the land based casino operations model has on their  Internet gaming strategy.

For the purpose of clarity on this subject I would like to set the historical context for why US land based casinos act the way they do when it comes to  iGaming and  free to play casino businesses.

Land Based Casino's Are Defined By Their Core Business - This may seem obvious, however, it is remarkable how little online casino operators understand the land based casino business model and its impact on them. For the most part very few people in a land based casino operation have practical hands-on experience with online Internet or gaming businesses. This has certainly changed over the years.  However, it is far from where it could or should be and this knowledge gap has an impact on land based casino iGaming and social gaming strategy and execution. 

This is important because  for the few people in a land based operation that do understand the iGaming space it is  hard for them to get the land based organization behind it and to interact with it in an effective manner.

Land Based Casino Operations - Running a casino is a bricks and mortar activity that involves physical items, such as buildings, restaurants, actual living breathing people,  taxi cabs, physical slot machines,  snail mail marketing campaigns, etc. Land based casino's operate their businesses with amazing efficiency. These businesses are so efficient because they do not want employees to think out of the box. They want them to execute according to a formula and directly with the public not through the filtered lenses of the Internet. The casinos have a lot of people on their staff that they have to keep  focused on the mechanics of operating hotels, restaurants and the casino floor. Quick change in an environment like this is difficult,  risky and potentially expensive.

Conversely,  iGaming and social gaming businesses require adaptation,  frequent changes to product and agile processes to compete in the online marketplace. Essentially, iGaming and social gaming can be  threatening and confusing to many land based casino employees because it operates differently from their core land based  business model.

Lack Of Internal Project Or Internet Gaming Expertise - For the most part the US land based casinos have not made significant investments in staffing  their own Internet or Internet gaming  organizations. You can see this reflected in their web sites, in the deals they have with Internet gaming related companies and  in the way  Internet gaming content is integrated into their web sites.  In the absence of Internet/E-commerce  expertise it is hard for land based casinos to make   substantive  or informed decision when it relates to iGaming or social casino deals and partnerships. This lack of experience usually results in deals and relationships that do not significantly result in the integration of the two business models or deals that focus on the benefits of online gaming for the land based operation.

Primary Short Term Social Gaming  Goal Of Land Based Casinos - Because  of the absence of Internet gaming expertise within the casinos the casinos will have the tendency to focus on how Internet gaming will help their land based operations.   There are two  primary goals that land based operators currently have for social gaming. One is to drive more traffic to their web sites and hopefully to their land based operations. This is primarily done through an association between the game and the land based loyalty program granting points for online play that can be used in the casino. The second is a marketing objective to associate the casino's brand with online game play. This is a form of   "gamification" where games are added to the web site to provide stickiness and potential up-sell of online players into land based casino activities.

Primary Internet Gambling Goal -  The casino's Internet gambling strategies have been primarily influenced  by the legal status of Internet gambling in the US. The back and forth nature of US legal Internet gambling has certainly confused and frustrated everyone and especially, the land based operators who realize they need an online gambling strategy but which one? iGaming  is currently not legal in most states and it is difficult to tell when there will be a critical mass of legal online gamblers in the US. However, some day there may be enough liquidity in the US online gambling space to make a real business out of it. However, because Internet gambling is a closer match to the core land based casino model, primarily due to the regulated nature of online gambling in the US and the potential ability to leverage land based licenses into the online space, the casinos are very interested in Internet gambling.  Also, the Internet games themselves are more likely to be clones of the land based games. In addition, the casinos may have a strategic advantage in online gambling that they do not have in social or free to play games. The moral of the story hear is that the social or free play business model has not been top on the list of gaming models to consider. However, the vacillation of legislators on the likely outcome of widespread legal Internet gambling has caused casino's to take a look and get invovled with social gaming. However, the integration or lack of well thought out integration into the casinos themselves demonstrates their rather lackluster approach. Yes, Caeser's has purchased social gaming properties and MGM has MyVegas. However, look at the integration of these models into their core business. To be polite they could have  done a much better job. 

The Impact Of Regulation - The US casino's are heavily regulated resulting in an homogenised set of gambling offerings that are identical across the casino landscape. Essentially, meaningful changes in the games or the delivery mechanisms are rare and highly subject to being copied quickly by competing casino's and vendors.   

 This is obviously very different  from the world of  iGaming, social gaming and free to play where everything is constantly changing. Technologies change on a regular basis, different game formats appear and disappear. Most marketing is done online, the social graph is important, competition is fierce with numerous companies of all sizes competing in the space.

 In contrast, regulation has caused the land  based casino business to consolidate into a small number of operators owning and controlling  a number of casinos all with the same essential game content.  Innovation in the gaming space is infrequent with extraneous businesses such as entertainment, hotel and restaurants playing more of a role in the evolving customers experience. Thus, the reason for non-gaming revenue now exceeding gaming revenue on the Las Vegas strip.

This means that the iGaming, social gaming and free to play business  and operational models are unfamiliar to most land based casino staff making it difficult for these two worlds to be able to speak the same language, have similar business objectives and to execute on an  overriding Internet gaming strategy. The moral of the story is to learn to speak the language of the land based casino and address the needs of the land based operator before you start a dialogue with them. The social casino culture is particularly alien to the land based operators.

The Land Based Casino Family - Casino operators like to work with people that have been on the inside working with land based casinos and not as much with companies and people on the outside with no land based casino history. A good example of this is the team that has created MyVegas for MGM. That team is populated by people that have a long history working in and with the land based casino operators. Some of them have actually operated land based casino's and built slot machines!! This prejudice makes it difficult for a company with only iGaming or social gaming background to do deals with the land based operators.

Buy Versus Build - The land based casinos have a strong propensity to buy versus partner/build. This is for obvious reasons given their lack of expertise in the online space. There are two notable exceptions, MGM's association with MyVegas and Wagerworks and the   Harrahs(Caesar's Place) launch of the Luckyme property in the UK.  Harrahs eventually changed its course and purchased Playtika. The major slot machine manufacturers  have a similar history with the purchase of Wagerworks and DoubleDown By IGT and Aristocrat's recent purchase of a social gaming company  Product Madness.  Wynn also put a bid on  PokerStars but had to back off the deal because of the US justice departments claim against PokerStars. Essentially, going at the casino companies with some kind of business deal that requires the casino management team to integrate content into their web sites or implement changes to their staff and processes is probably not going to be well received. Whatever it is it has to be almost turn key for the land based operator.

Backend Casino Management Systems - The casino companies all use  a "backend" systems to manage the transactions on the casino floor. These systems are supplied by three main  slot providers, Aristocrat, Bally's and IGT.  The propensity to  purchase slot  content and outsource backend functions to these companies also makes the casino's dependent on them and familiar with them. Therefore the casino's have a propensity to look  to them first for any gaming content and information processing.  Consequently, companies looking to do iGaming, social gaming or free to play gaming deals with casinos may want to first contact the slot game manufacturers first before approaching the casino's themselves. However, be careful about revealing any proprietary content or processes during the initial discussions.

It is obvious that the land based casino and online game companies have a bit of a disconnect when it comes to operating models, staffing and  business processes. This also means that approaching a land based casino operator with an iGaming, social gaming or free to play model has to made with this in mind if progress is to made.  Knowing someone inside the land based casino world is helpful and an endorsement from that individual should be obtained.  Any social, free to play or  Internet gambling operation should be able to stand on its own without any involvement with land based casino operators. Ironically, this may setup a purchase of an Internet gaming company instead of an affiliation.  

Kevin Flood is the CEO of Gameinlane, Inc. Gameinlane works with companies in the social, Internet gambling and land based casino sectors developing game content and online gaming strategies. Kevin is a frequent speaker at social game, Internet gambling and casino events and conferences in Asia, Europe and the US. Kevin is currently working with organizations to determine their acquisition and merger strategy as it relates to the growing interdependence of the various game content and delivery platforms.